Answer to Question #251661 in Microeconomics for Sha

Question

Suppose now the government decides to increase the number of quotas available to 72 units, but it keeps the price support at the current level of $72,

calculate

the consumer surplus

the producer surplus

deadweight loss

Answer 1

Solution:

Consumer surplus = $\frac{1}{2} \times(72-50) (72-45) = \frac{1}{2} \times(22 \times27) =\frac{1}{2} \times594 = 297$

Producer surplus = $\frac{1}{2} \times(72-68) (65-30) = \frac{1}{2} \times(4 \times35) =\frac{1}{2} \times140 = 70$

Deadweight loss = $\frac{1}{2} \times(45-38) (45-30) + \frac{1}{2} \times(72-68) (45-30)= \frac{1}{2} \times(7 \times15) + \frac{1}{2} \times(4 \times15) =\frac{1}{2} \times105 + \frac{1}{2} \times60 = 53 + 30 = 83$